AP News, October 30th, 2007
Qwest Communications International Inc. on Tuesday reported a jump in third-quarter net income, although revenue dipped as consumers continued to move away from traditional telephone lines.
Chief Executive Officer Edward Mueller, who was appointed in August, added to uncertainty among analysts and investors by declining to provide details about his plans for the telecommunications company until he completes a strategic review, expected by year end.
"I think a complete holistic plan from a new CEO is the right thing to do," he told analysts during a conference call.
Shares of Denver-based Qwest fell 12 percent by the afternoon, hitting a 52-week low.
For the quarter ended Sept. 30, Qwest reported net income of $2.07 billion, or $1.08 per share, compared with $194 million, or 9 cents per share, in the third quarter of 2006.
The surge in income was due to a tax benefit of $2.15 billion, compared with a tax benefit of $43 million in the previous year's quarter. Qwest also recorded $353 million in charges during the most recent period, stemming from settlements of shareholder lawsuits.
Excluding the special items, earnings would have been $269 million, or 14 cents a share, Chief Financial Officer John Richardson said.
Operating revenue declined 1.5 percent to $3.43 billion from $3.49 billion in the year-ago quarter.
Analysts polled by Thomson Financial had forecast, on average, net income of 15 cents per share on $3.49 billion in revenue for the period.
Total access lines fell 7.2 percent, reflecting a move by consumers away from traditional phones to cell phones and phone service from cable companies. Qwest also saw a 19 percent drop in wholesale long-distance services.
Mueller attributed the wholesale revenue decline to consolidation in the industry and said the company is looking to replace those losses with high-speed products. Verizon Communication Inc. and AT&T Inc. are in the process of moving more long-distance traffic from their subscribers onto their own lines.
Analysts had hoped for details about plans for a dividend, but the company's board of directors deferred a decision until Mueller's review is complete. The board did approve spending up to an additional $300 million next year to improve connections to homes.
Qwest changed its 2007 forecast for adjusted earnings before interest, taxes, depreciation and amortization to an increase of $250 million for a total of $4.65 billion. Previously, the company had forecast an increase of up to $400 million.
The company reiterated its forecast of $1.8 billion in adjusted free cash flow for 2007.
In the first nine months of the year, Qwest reported net income of $2.6 billion, or $1.31 a share, compared with $399 million, or 20 cents a share, in the first nine months of 2006. Revenue totaled $10.3 billion compared with $10.4 billion in the 2006 nine-month period.
Mueller replaced Dick Notebaert, who helped turn Qwest around after it was forced to restate about $2.2 billion in revenue in the wake of an accounting scandal.
"The new management team did what might have been expected with a reset of expectations," analyst Jason Armstrong of Goldman Sachs wrote in a research note. "However, the results speak for themselves and reflect a stalling of both revenue stability and margin improvement."
Qwest stock fell $1.01 to $7.17 in afternoon trading. In the past year, it has ranged from $7.41 a share to $10.45 a share.
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On the Net: http://www.qwest.com
